Bonus season: A guide to safeguarding your bonus in a divorce sttlement
Estimated reading time: 4 minutes
You've worked hard to build your career and establish a strong financial future for yourself and your family. If you get divorced, it's important to understand how your assets, including your bonus, will be divided.
How are assets divided in a divorce?
The division of assets on divorce (governed by section 25 of the Matrimonial Causes Act 1973) is based on several factors, including the length of the marriage, the resources (individual and joint), and the financial needs of each spouse and any dependent children of the family. When it comes to your bonus, the court will consider whether it is "matrimonial property" or "non-matrimonial property".
What counts as matrimonial property?
Matrimonial property is defined as property acquired during the marriage, including income earned during that time. If your bonus is considered matrimonial property, it will be subject to division as part of the overall asset split in the divorce and potentially shared.
What counts as non-matrimonial property?
Non-matrimonial property on the other hand, includes property acquired before the marriage or via inheritance or gift. If your bonus is considered non-matrimonial property, it will not be shared, but may be part of a maintenance claim.
Recent case law provides clarification that bonuses should only be characterised as non-matrimonial where they relate to a period commencing at least 12 months after separation. So any bonuses that are earned during the marriage or 12 months after, are likely to be considered “matrimonial property” and therefore shared upon divorce.
The curve ball here is that the courts have wide discretion when it comes to the division of assets on divorce, and there is no hard and fast rule when dealing with bonuses. In some cases, the court may decide to divide a bonus even if it is considered non-matrimonial property if the needs of the parties can only be fairly met by including the bonus in the matrimonial pot available for division. That is likely to be limited to meeting income needs. In such cases, a bonus received post-separation is likely to remain on the table, but the claim will likely be much lower in value.
Does the type of bonus make a difference?
It is worth noting that discretionary bonuses, which are not guaranteed and are subject to certain conditions, may be treated differently from guaranteed bonuses. The court will consider the likelihood of receiving a discretionary bonus when determining the value of the bonus in a divorce settlement.
How can you protect your bonus in a divorce settlement?
To safeguard your assets and minimise any potential claim in the event of a divorce, it's important to seek legal advice early on and consider entering into a prenuptial or postnuptial agreement. These agreements can provide clarity and certainty around the division of assets, including your bonus, in the event of a divorce. Another option is to consider placing your bonus in a trust, which may help shield it from division during a divorce, particularly if the funds have been placed in trust to cover future expenses such as school and university fees for children.
While the treatment of bonuses in divorce can be complex and depends on several factors, including whether it is considered matrimonial or non-matrimonial property, seeking legal advice and taking steps to protect your assets can help ensure a fair outcome in the event of a divorce. By being proactive and informed, you can help to ensure that your hard-earned bonuses are preserved for your future. Our door is always open for a no-obligation chat about your situation so call us on 020 4579 5360 or complete our contact form.
Frequently asked questions about bonuses in a divorce settlement
Is a bonus considered matrimonial property in a divorce settlement?
Whether a bonus counts as matrimonial property in a divorce settlement depends largely on timing. Bonuses earned during the marriage are generally treated as matrimonial assets and may be subject to division. As a rule of thumb, recent case law indicates that a bonus is only likely to be treated as non-matrimonial where it relates to a period beginning at least 12 months after separation.
Can my ex-spouse claim a share of my bonus after we have separated?
In some circumstances, yes. Even if a bonus is paid after separation, if it relates to work carried out during the marriage it may still be brought into the matrimonial pot. Where the financially weaker party's needs cannot be met from other assets, a court in England and Wales may include a post-separation bonus in the settlement, though the value of any such claim is likely to be lower.
Are discretionary bonuses treated differently from guaranteed bonuses in divorce proceedings?
Courts in England and Wales do distinguish between the two. A guaranteed bonus is more straightforwardly included as part of income or capital in a divorce settlement. A discretionary bonus, which is subject to performance conditions and not certain to be paid, will be assessed differently — the court will consider how likely it is to be received and factor that probability into its calculations rather than treating it as a fixed sum.
Can a prenuptial or postnuptial agreement protect my bonus in a divorce?
A carefully drafted prenuptial or postnuptial agreement can provide a degree of protection for bonuses and other assets in the event of a divorce. While such agreements are not automatically binding in England and Wales, courts give them significant weight where both parties received independent legal advice and the agreement was entered into freely and with full financial disclosure. Taking legal advice early is the most effective way to safeguard assets you have built up over your career.
